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NVIDIA Corporation (NVDA)

F2Q10 Earnings Call

August 6, 2009 5:00 pm ET

Executives

Michael Hara - Investor Relations

Jen-Hsun Huang - President, Chief Executive Officer and Director

David White - Chief Financial Officer

Analysts

Rick Schaeffer - Oppenheimer

Craig Berger - Friedman, Billings, Ramsay

Tim Luke - Barclays Capital

Joanne Feeney - FTN Capital

Patrick Wang - Wedbush Morgan

Suji DeSilva - Kaufman Brothers

David Wu - Global Crown Capital

Shawn Webster - J.P. Morgan

Presentation

Operator

Good afternoon. Thank you for holding. I would now like to turn the call over to Michael Hara, Vice President, Investor Relations. Thank you, sir. You may begin.

Michael Hara

Thank you. Good afternoon and welcome to NVIDIA's conference call for the second quarter of fiscal 2010. With me on the call today from NVIDIA are Jen-Hsun Huang, NVIDIA's President and Chief Executive Officer; and David White, Chief Financial Officer.

After our prepared remarks, we will open up the call for a question-and-answer session. Please limit yourself to one initial question with one follow-up.

Before we begin, I would like to remind you today’s call is being webcast live on NVIDIA's investor relations website and is also being recorded. A replay of the conference call will be available via telephone until August 14, 2009 and the webcast will be available for replay until our conference call to discuss our financial results for the third quarter of fiscal 2010.

The content of today’s conference call is NVIDIA's property and cannot be reproduced or transcribed without our prior written consent.

During the course of this call, we may make forward-looking statements based on current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today’s earnings release, our Form 10-Q for the fiscal period ended April 26, 2009, and the reports on Form 8-K filed with the Securities and Exchange Commission. All of our looking statements are made as of today, August 6, 2009, based on information available to us today and except as required by law, we assume no obligation to update any such statements.

Unless otherwise noted, all references to research market and market share numbers throughout the call come from Mercury Research or John Petty Research.

During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our financial release, which is posted on our website.

With that, I will turn the call over to Jen-Hsun.

Jen-Hsun Huang

Thanks, Mike. Good afternoon, everyone and thank you for joining us. We are pleased to report revenue of $777 million, representing sequential growth of 17% from Q1. We reported a GAAP net loss of $0.19, which included an additional net charge of approximately $119 million to cover costs related to the die packaging material set issue which we previously disclosed in July 2008.

Although the number of systems impacted by this remains consistent with our initial estimates, the costs of remediation and repair has been higher than originally anticipated.

Non-GAAP gross margin, which excludes the additional charge and stock-based compensation, was 36.3%, an improvement of 560 basis points over last quarter. On a non-GAAP basis, net income was $0.07 per share. We reduced inventory by another $48 million, which now stands at 51 days on a non-GAAP basis. We made good progress managing down operating expenses through efficiency projects. I also want to acknowledge the sacrifices NVIDIA employees are making so that our company can continue to invest in the important initiatives that we are passionate about.

Strategically, we are focused on two major game changing ideas. First, computing is evolving from central processing on the CPU to co-processing on the CPU and GPU. To enable this new computing paradigm, we invented the CUDA parallel computing architecture that is now shipping in over 100 million GeForce ion quadro and Tesla GPUs, representing a significant installed base for application developers.

After three years of evangelizing, GPU computing has surely reached the tipping point. CUDA has been adopted in a wide range of applications. In consumer applications, nearly every major consumer video application has been or will be accelerated by CUDA. We estimate there are over 1200 research papers based on CUDA. We’ve highlighted 500 of them on CUDAZone.com.

CUDA now accelerates Amber, an important molecular dynamic simulation program used by more than 60,000 researchers in academia and pharmaceutical companies worldwide to accelerate new drug discovery. CUDA sped up Amber 50 times.

For the financial market, numerics and compatible announced CUDA support for their new counter party risk application and achieved an 18 times speed-up. Numerics is used by approximately 375 financial institutions.

There are broad ranging uses for CUDA including astro physics, computational biology and chemistry, fluid dynamic simulation, electromagnetic interference, CT [image reconstruction], seismic analysis, raytracing and more.

Another indicator of CUDA adoption is the ramp of our new TESLA GPU for computing business. There are now more than 700 GPU clusters installed around the world with new Fortune 500 customers ranging from Schlumberger and Chevron in the energy sector to BNP Paribas in banking.

And starting this fall with the launch of Microsoft’s Windows 7 and Apple’s Snow Leopard, GPU computing will go mainstream. In these new operating systems, the GPU will not only be the graphics processor but also a general purpose parallel processor accessible to any application.

Read the rest of this transcript for free on seekingalpha.com